America Is In Deflation. So What?

Instead, the U.S. has now technically slipped into deflation for the first time since shortly after the Great Recession. Consumer prices as measured by the Labor Department fell 0.7 percent from December to January — the largest monthly drop since December 2008 — as the result of plunging gas prices. That left the Consumer Price Index down 0.1 percent from the previous year, the first such drop since October 2009. 

 
As they consider the timing of their first interest rate hike since 2006, Federal Reserve officials, including Fed Chair Janet Yellen, seem to agree. In her testimony before Congress this week, Yellen noted that the Fed’s preferred measure of inflation continues to run below the 2 percent target rate. Yet the central bankers are looking beyond what they expect to be a short-term dip. 

“Despite the very low recent readings on actual inflation, inflation expectations as measured in a range of surveys of households and professional forecasters have thus far remained stable,” Yellen testified. “The [Federal Open Market] Committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”

DYI Comments:  The only notion that I have for the Fed's to raise rates providing room to drop rates when the next recession occurs.  Currently and for the next four or five years deflation or very low inflation will rule the day.  When Boomers retire in numbers soaking up unemployment until we go into a labor shortage.  Add on the costs of Medicare and Social Security the Fed's will relent to political pressure to monetize a portion of future borrowings. The 2020's will be marked by high taxes, high inflation, and a labor shortage.  Until then low inflation/deflation will rule the day.

DYI